13 February 2013

7 minute read

Europe

With this in mind LMC, in conjunction with Invest NI, have purchased a global market report from GIRA which outlines important global and EU market trends and opportunities for both beef and sheep.

GIRA is a strategic market analyst and research firm, founded over 30 years ago, which focuses on the agri-food and retail chain. They provide analysis of European and worldwide markets in some product sectors such as meat, fish and dairy. GIRA hold annual conferences where they provide an overview of the European and global food markets and use these conferences to engage with worldwide industry representatives and share their forecasts on the performance of the sector over the next twelve month period.

Meat Consumption Trends

In their latest report GIRA have outlined increasing levels of total meat consumption and expenditure on a global scale, although at a slower rate than has been recorded in recent years due to higher prices. Poor harvests due to weather difficulties have driven up the cost of cereals and resulted in an increase in the costs of production for all meats across many regions of the world.

These high costs are expected to keep meat prices at high levels well into 2013. The costs of production in agriculture are closely linked to the price of oil and with oil prices expected to remain high in the future the same is expected with regards to production costs in agriculture.

GIRA highlighted how important it is that the higher prices now being paid by the consumer for meat are fairly distributed back to the production chain to help cover the increasing costs of production and the increased prices being paid by the processor for raw materials as a result.

It is equally important that lower value cuts, which currently have a low demand within the EU, are effectively marketed on a global scale as this will help to add carcase value and increase returns to the EU meat industry. Demand for cheaper cuts have shown significant growth in areas such as the Middle East and North Africa as economies develop and incomes increase.

The market analysis reports produced by GIRA contain huge volumes of information on the EU and Global meat markets but for the purposes of this article we will focus on their analysis of the beef markets.

EU Beef Supplies

The latest analysis from GIRA in terms of the performance of the EU beef sector has highlighted the downward trend in beef production across the EU while high prices have continued.

In 2012 there has been a three per cent reduction in domestic consumption of beef within the EU with the primary reason for this being the increasing cost of beef on the super market shelves. This is very much in line with the latest NI consumer data from Kantar which indicated a 3.3 per cent drop in the volume of beef purchased in NI in the year ending the 23 December 2012 when compared to the previous year.

It is worth noting that the value of beef sales in NI increased by 12.3 per cent over the same period indicating continued strong consumer demand for beef The availability of other global markets for beef to third country exporters, combined with tight global supplies, have meant that imports of beef into the EU have been below quota in recent years. The reduced level of imported beef has further increased the beef scarcity within the EU and helped to maintain high beef prices.

The GIRA market research indicates that supplies of finished cattle will remain tight across much of the EU over the next twelve months. There will however be increased supplies of finished cattle in Ireland due to an increase in the number of calves retained for beef production in 2011 coming fit for slaughter in 2013.

The problem of reduced availability in the EU is being exacerbated by the live export of cattle to North Africa and the Middle East as these further reduce the availability of cattle for slaughter. However the lower availability of cattle for slaughter is not just confined to the EU.

At present the supplies of slaughter cattle across the globe are tight with the lack of profitability, competition for land and the high costs of beef production discouraging cattle production in many regions.

Future EU Beef Supplies

The most recent figures from GIRA have indicated that 66 per cent of the cow herd in the EU is dairy cattle which acts as an important source of beef animals for the beef sector. While some countries, such as Ireland, have shown slight dairy growth the general trend across the EU has been an overall decline with the dairy cow herd back 1.2 per cent in 2012 with a further, but slower, decline forecasted for 2013 of 0.4 per cent.

Some of this decline in dairy cow numbers can be attributed to higher yielding cows increasing milk output from a smaller cow herd. In the longer term this reduction in dairy cow numbers could reduce the availability of beef cattle from the dairy sector.

In addition increasing dairy production costs and an over reliance on the liquid milk sector in mainland EU has reduced confidence in the sector and this inhibits growth despite the opportunities the ending of the milk quota in 2015 will bring. The EU beef cow herd accounts for the remaining 34 per cent of the EU cow herd and in 2012 was back 1.2 per cent on the previous year.

GIRA however predict a slight increase in the suckler cow herd (+0.5 per cent) with increased confidence in the sector due to stronger beef prices. This recovery in suckler cow numbers has however been stalled by high feed costs which are driving up the costs of production and the current high cull cow prices across the EU.

Whilst demand for beef in the EU may have shown a decline the EU has become a net exporter of beef and this has helped keep beef prices at a reasonably strong level.

Global Beef Market

With firm producer prices across the globe and an increasing global demand for beef the biggest barrier affecting future possible growth is the rising costs of production.

For example in Italy where beef production systems are heavily dependent on large inputs of cereals the costs of production have increased markedly. As a result levels of beef production have started to show declines due to increasing costs and diminishing returns.

Competition for land from other sectors is also an important factor when considering future global beef supply. The rising global demand for cereals for feed and bio-fuels has meant large areas of traditional ruminant producing regions of South America have been converted to arable production with beef production pushed out onto more marginal lands.

Competition from other industries such as dairy must also be considered e.g. in New Zealand beef production is competing against a rapidly expanding dairy industry for land. With reduced profitability in beef production farmers are changing land uses and production practices to increase incomes.

On a more positive note however the demand for beef is on the increase across the globe, particularly in the Middle East and North Africa, which will open potential export markets at a time when domestic sales within the EU are sticky.

Both regions also have a strong demand for live imports of cattle with Turkey in particular having a preference for live cattle over imported beef and altered tariffs during 2012 to encourage more imports of cattle for breeding and slaughter. Another important export market for the EU is Russia which has a huge demand for manufacturing beef which it uses in further processing.

The majority of demand from Russia would be for dairy origin cattle with limited demand for prime cattle. The UK now has access to this important market as of late 2012.

Future Opportunities

The latest GIRA report has indicated opportunities for the EU to export beef to other regions of the world where beef demand is on the increase and it is important that these markets are utilised. However it has also highlighted that within the EU the increasing costs of production have increased beef prices across the region and this has made beef less attractive to the average consumer.

As a result it has predicted some further declines in EU beef consumption during 2013. It should however be noted that increasing cereal costs may actually work to the advantage of beef producers by increasing the cost of alternative meats such as chicken and pork, which are totally dependent on costly cereals.

This is particularly relevant in the UK and Ireland where our ability to utilize grass and forage to finish cattle reduces our dependence on cereals and has the potential to keep our costs of production markedly below our counterparts in the rest of the EU.

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